The bear market rally was led by short covering, 0DTE options, central bank and TGA liquidity, as well as retail, CTAs, and managed money. There isn't much fuel left for further upside based on our analysis.
Downside risks have grown significantly with weakening fundamentals, leading econometrics, 0DTE mania, Fed and ECB tightening, as well as current stretched positioning. As a result, we believe the bear market rally lives on borrowed time.
01:17 Most-shorted stocks outrun the market
03:47 Short covering has been a leading driver of gains in tech
08:14 Global equities have also seen intense short covering
12:06 Retail market participation showing an extreme
17:11 Net inflows by retail this year exceed that of 2020 or 2021
23:44 Retail market participation is elevated to over 20% of all market volume
28:38 What are they buying?
36:18 CTAs are very long this market
38:21 CTAs have a lot of exposure to sell
39:24 Managed money is aggressively long again
40:20 The last three times we saw managed money this long it ended poorly
46:23 50% of SPX options traded are 0DTE now
47:58 And it's not just in SPX, but SPY, too
52:06 Call volume has exceeded the last options-driven manias
58:35 Options account for 70% of notional trading daily now
1:00:43 Real rates are rising, which may pressure equities
1:00:53 Stock valuations and real rates are diverging
1:05:27 Deterioration in fundamentals is another risk that's building
1:08:55 LEIs suggesting we're headed towards recession
1:17:40 Sentiment is far from bearish extremes
1:18:50 Deleveraging remains the name of the game
1:21:09 PBoC and BoJ helped to spark this rally
1:27:35 Fed terminal rate priced at 5.5% currently
1:37:32 Fed tightening often breaks something
1:41:05 A Fed pivot may not be the turning point...
1:43:50 Assets of major central banks vs S&P 500
1:51:41 In conclusion (recap)
For a copy of the presentation used in this video, please see this PDF below.
Is the rally on borrowed time
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